CA rejects latest challenge to costs deduction from damages

Vos: On bench for Menzies and Belsner

The time for a client to challenge a solicitor’s deduction from their damages runs from the time the deduction is made, without the client having to agree the specific amount, the Court of Appeal has ruled.

The court also reiterated the call it made last year in Belsner for the costs provisions of the Solicitors Act 1974 to be updated.

In Menzies v Oakwood Solicitors Ltd [2023] EWCA Civ 844, the court said the phrase ‘settlement of account’, first used by the then Master of the Rolls, Lord Langdale, in 1845, should no longer be used.

In the case, a personal injury claim that settled for £275,000, the conditional fee agreement (CFA) expressly authorised the solicitors to recoup their success fee out of the client’s compensation, which they did after reminding the client about it and delivering their bill.

The client – represented by Leeds firm JG Solicitors – only challenged the deduction two years later. Under section 70(4) of the 1974 Act, the power to order assessment is not exercisable more than 12 months after “the payment of the bill”.

At first instance, Costs Judge Rowley held that the application for an assessment was barred by section 70(4). He said the communications between the client and solicitors at the time of settlement provided the client’s agreement to the deduction and that was the point at which payment was made.

On first appeal, Mr Justice Bourne disagreed, saying there had to be a ‘settlement of account’ between the parties, “rather than a mere statement of account”.

This could take the form of the solicitor giving the client a reasonable time in which to notify any dispute, after which agreement could be assumed if there were no reply.

But he held that Oakwood had not made it clear that the client could choose to object to the deduction.

Overturning this, the court – made up of Master of the Rolls, Sir Geoffrey Vos, Lord Justice Lewison and Lady Justice Simler – said: “We have decided that none of the 1974 Act nor the authorities provide any warrant for a requirement that there must be a ‘settlement of account’ in addition to a prior agreement to payment of the fees shown in a statutory bill.

“Instead, ‘payment’ in section 70 is to be construed as including the deduction of fees payable under a statutory bill with the knowledge and consent of the paying client.”

The court said the phrase ‘settlement of the accounts’ should no longer be used in this context. “It is not a phrase that is used in section 70. Its meaning is unclear, and its origin lies in cases in which there was no written contract of retainer.”

The phrase in the Act was ‘payment of the bill’ and paying a solicitor’s bill “ought to be no different to the action of payment of any other bill”.

“We are content to adopt the meaning proposed by Aldous LJ in [the 1996 decision of Gough v Chivers & Jordan], namely that payment for the purposes of section 70 is a transfer of money (or its equivalent) in satisfaction of a bill with the knowledge and consent of the payer.”

Delivery of a bill that complied with section 69 of the Act gave the client “the necessary knowledge”, the court went on.

“The requirement of consent does not, in our view, require that consent be given after the delivery of the bill, if the client has already validly authorised the solicitor to recoup his fees by deduction from funds in his hands.

“What the client needs to consent to, in order for payment to take place, is ‘the transfer of money’, not necessarily the precise amount to be transferred.

“We reject the submission that the client must agree to a deduction quantified in pounds and pence. It is the process of assessment that fixes the precise amount that the client is required to pay.” They could then challenge the exact amount under the Act.

Whether the client has authorised the solicitor to recoup fees by way of a deduction from funds in hand “is a question of interpretation of the written contract of retainer”. Here it was clear that the CFA and its accompanying documents provided authorisation.

“Payment of the bill took place when, after delivery of the bill, the solicitors made that deduction. It follows, in our view, that payment of the bill took place more than one year before the bill was challenged and that, consequently, the court’s power of assessment was barred by section 70(4).”

The ruling concluded: “This court has previously said in Belsner that the 1974 Act, the wording of which has barely changed in many relevant respects since the Solicitors Act 1843, is in need of reconsideration. We repeat that view.

“The world of 2023 is a far cry from the early days of Queen Victoria’s reign. The balance between the protection of consumers on the one hand and certainty on the other needs to be re-evaluated in order to produce a system fit for the current century.”

Sir Geoffrey also the bench in Belsner as well.

The recent Civil Justice Council review of costs also recommended that the Act be modernised.

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